This paper shows that a unique balanced growth monetary equilibrium exists
in a transactions-based monetary endogenous growth model with habit
formation or durability in consumption. An increase in the nominal money
growth rate reduces the long-run output growth rate, wherein habit formation
enforces the e ectiveness of monetary policy while durability in consumption
reduces it. We also show that while habit formation destabilizes the macroeconomy
by making the balanced growth equilibrium exhibit local indeterminacy,
durability in consumption maintains saddle-path stability of the balanced
growth equilibrium. We nd that the mechanism through which habit formation
and durability impose di erent e ects on both the growth-e ect of money
and the macroeconomic stabilizing properties is such that habit formation and
durability in
uence the elasticity of intertemporal substitution in consumption
in opposite directions.